CHENNAI: Whilereal estate is one of the most popular asset classes, it requires a combination of knowledge and discipline to generate healthy returns on investment. Here are four steps that could help you in making a successful decision and reap rich rewards in the long term.
Objective of investment: This should be your first decision. Whether you invest for long-term capital appreciation or regular rental returns, the objective of the investment should always be clear in your mind. This will help you in avoiding disappointment on matters that do not match your objective.
For instance, if you purchase a residential property for long-term capital gains, you need not worry about temporary fluctuation in prices.
“A real estate investor should be 100 per cent sure about his objective of investing,” says Rajat Dhar, managing partner, Cogent Advisory.
Local knowledge: As an investor, you might be tempted to invest in emerging areas that offer properties at low rates and demonstrate potential to generate better returns on investment. You could even invest in Tier II cities, which might be a good option.
But, “it is very important to have local knowledge of the area that one is investing in,” Imtiaz Panjwani, chairman, Seer Realty, India, suggests.
The master plan of a city holds critical significance so one can plan their investment in a strategic manner to get maximum returns on investment, Panjwani adds. If the emerging area is a part of the current or future master plan, it will be taken care of by the local civic authorities in the city.
This includes development and maintenance of roads, street lights, water supply and drainage systems.
Project-specific information: According to Girish Shah, executive vice president, sales and marketing, Godrej Properties, “Investment decisions in real estate purely depend on the location potential, social infrastructure development in the micro market, project delivery time-lines and credibility of the developer and his demonstrated abilities over the years.”
The track record of the developer and the quality of the previous projects shall also be examined thoroughly, Panjwani added. The projects, in which you invest, must have all the necessary permissions from the concerned government authorities.
Moreover, once the Real Estate Regulatory Bill gets enacted in India, no real estate project will be launched unless a real estate developer obtains all the necessary permissions. But until the Bill gets enacted, the onus to check all the approvals related with the development of the project lies with the buyer.
Financial management: Investors should not stretch themselves beyond their means, no matter how appealing and flexible the payment options appear, Dhar advises. Real estate is not a highly liquid asset class and you need to have sufficient funds to support your transactions till the end.
At times, investors tend to buy properties on the basis of projected cash flows and finance. If you are going for a home loan, then try to minimise the amount as much as possible. Though banks and financial institutions conduct a thorough due diligence and offer loan amount on the basis of the applicant’s financial capacities, it is advisable to take a conservative approach.
“Ideally 40 per cent of your salary should go in a home loan EMI,” says Neeraj Bansal, partner-advisory, KPMG.